Don’t Cut Aid to the Palestinian Authority

U.N. Membership Bid Could Have Serious Consequences

Palestinian Authority President Mahmoud Abbas has gone through with plans to request U.N. membership for the State of Palestine from the United Nations Security Council despite a certain U.S. veto. In response, Israel’s finance minister has threatened to halt the transfer of taxes Israel collects on the Palestinian Authority’s behalf, while American politicians have threatened to cut off the U.S. assistance to the Palestinian Authority, or PA.

On a recent trip to Israel, however, both Israeli and American diplomatic officials expressed deep concern over the potential de-funding of the Palestinian Authority being placed on the table by Israeli and American politicians.

Both Israelis and Americans stated that a cut off of U.S. aid or Israeli tax transfers could lead to the collapse of the Palestinian Authority itself. For their part, Israelis viewed an aid cutoff as a threat to Israeli security given the near-certain likelihood that such a move would lead to the breakdown of security cooperation between Israel and the Palestinian Authority’s security forces. One Israeli journalist said that “Poor Palestinians are bad for Israel,” and suggested that Hamas would gain from any reduction in aid to the PA. Absent PA actions Israel considers provocative—such as bringing Israelis before the International Criminal Court for alleged crimes in West Bank and Gaza—there appeared to be consensus that aid to the PA should continue despite the current diplomatic ruckus.

American diplomats and contractors also strongly advised against cutting off aid to the Palestinian Authority as a form of punishment for the U.N. bid. One U.S. consulate official reported uncertainty as to what the younger cohort of Palestinians would do in the wake of an aid cutoff, while a USAID official noted that the West Bank was a closed economy driven by outside money and international aid. Another U.S. diplomat working on economic issues noted that the West Bank economy has deteriorated over the last six months and cited a tapering off of donor aid as a key factor.

This diplomat noted that the Palestinian Authority requires $150 million a month to pay wages to government employees, but only collects $60 million a month on its own, with an additional $110 million in revenue from Israeli tax transfers and $60 million more from international donor assistance. If tax transfers are halted as Israeli officials have threatened, the Palestinian Authority would not be able to pay salaries the first week of October. Clearly, the Palestinian Authority is in a fragile fiscal situation and does not need to lose any source of funding.

Comments from these U.S. officials indicate that ending U.S. aid or Israeli tax transfers would effectively amount to writing off the state-building investments made in the Palestinian Authority since 2007. These investments have led to increasing professionalization of Palestinian security forces and line ministries, promulgation and enforcement of commercial laws, better revenue collection, solid budgetary processes, and improved delivery of education and health services. As a U.S. contractor working on building the Palestinian security services put it, an increasingly professional bureaucratic and technocratic cadre was moving into the Palestinian Authority that understands and knows how to work with the Israelis. Cutting off U.S. aid or Israeli tax transfers would have an obviously devastating effect on these long-term investments.

But these officials also raised concerns beyond the near-term prospects. The state-building process, the economic diplomat said, is only sustainable if Palestinians know they are going to be getting a state at some point down the road. Otherwise, the diplomat said, the project and those who work on it are left open to charges that they are simply making the occupation more effective by administering it themselves.

Right now, the Obama administration should prioritize preserving aid to the Palestinian Authority at a time of tight budgets and diplomatic controversy at the United Nations. But the administration also needs to look beyond the immediate problems it is facing in the United Nations and Congress to determine what it is going to do to show tangible progress on the ground toward Palestinian statehood. Resolving day-to-day problems via more effective Palestinian institutions should be coupled with a realistic, hard-nosed program to expand the scope of the Palestinian Authority’s authority over the West Bank.